State of play in insolvency and bankruptcy reforms

The Insolvency and Bankruptcy Code, 2016 (Code) was enacted with the primary objective of consolidating and amending various laws relating to reorganisation and insolvency resolution of corporates, firms and individuals in a time bound manner to maximise the value of their assets. Before the Code, there was no single law dealing with insolvency and bankruptcy in India. As a result, multiple authorities such as the high courts, the Company Law Board, the Board for Industrial and Financial Reconstruction (BIFR) and the Debt Recovery Tribunals (DRT) had overlapping jurisdiction resulting in procedural delays and inefficient processes. Even with these legislations, insolvency resolution took 4.3 years on an average, which was much longer than the average of 1.5 years in other countries. In World Bank's ranking on resolving insolvency, India stood 136th in 2016.

The Code is an attempt to fix this and bring insolvency resolution in line with global standards. It imposes a mandatory requirement on the creditors to try and revive a company in a time bound manner (within 180 to 270 days) and if no resolution plan is approved within the stipulated time period, the company would go into liquidation. Given the huge back-log of cases that plague all courts and tribunals in India, the question arises if the timelines prescribed under the Code are too stringent? In the words of Dr. M. S. Sahoo, "if the hero in the novel Around the world in 80 days could circumnavigate planet Earth in 79 days when transport and communication facilities were rudimentary during the late 19th Century, 180 days is a long period now with all the advantages of modern technology and well-informed brains". The first corporate insolvency resolution process was initiated in relation to Innoventive Industries Limited by an order dated January 17, 2017 and the timeline within which it is completed may set a benchmark for others to follow.

The Code has also introduced a paradigm shift from debtor in possession to a creditor in control regime. A new class of professionals called insolvency professionals have been introduced to conduct the insolvency resolution process and to manage the affairs of the company in the interim. While around 581 insolvency professionals have been registered under the Code, it may be worth considering if they have the required skill-set to take on this responsibility and the business acumen to handle the challenges posed by complex businesses.

As the Code is still in its infancy, we will have to wait and watch if it is successful in providing stakeholders a viable option to rejuvenate the company or allow speedy exit from failed investments and mark an end to protracted litigation for recovery of dues.